Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on Edenred. We currently have 7 research reports from 1 professional analysts.
Edenred published Q3 FY17 trading results below our estimates as well as market consensus. All growth numbers are on a lfl basis, unless specified otherwise. Operating revenue grew by 7.0% (vs Q2: 7.2% and Q1: 10.0%), which was 300bp below our estimate. Employee benefits (64% of group sales) came in at 3.7% during the quarter (vs Q2: 5.6%, Q1: 6.7% and FY16: 7.6%), largely due to the high unemployment rate in Brazil and challenging conditions in Venezuela (ongoing economic and political crises). Excluding the Venezuelan operations (1% to the company’s consolidated revenues and EBIT), the employee benefits business grew by 4.9% during the quarter. Fleet & Mobility Solutions (26% of group sales) continued to post robust growth (Q3: 17.8%, Q2: 15.9%, Q1: 27.1% and FY16: 13.1%) across all major operating regions. On a reported basis, the segment grew by a staggering 78.8% ytd, benefiting from Embratec and UTA consolidation in May 2016 and January 2017, respectively. Complementary solutions (10% of group sales) clocked 7.5% revenue growth during the quarter. Total reported revenue (operating + financial) increased by 11.5% in Q3 – lfl: 6.6%, scope impact: 6.6% (mainly from the UTA acquisition) and currency impact of -1.7%. Management has reaffirmed full-year guidance – lfl growth in operating revenue: >7%, operating EBIT: >9%, FFO: >10% and full year 2017 EBIT: €420m – €445m.
Edenred released a Q1 17 trading update with numbers ahead of our estimates as well as the market consensus. Please note, the company has stopped sharing issue volume details from 2017 onwards. The operating revenue increased by 10% on a lfl basis (vs Q4 16: 10.0%, Q3 16: 9.9%; our estimate: 8.6%), largely driven by strong growth in both employee benefits (6.7% yoy; c.65% of group revenue) and the expense management business (27.1% yoy; c.25% of group revenue). In employee benefits, all geographies contributed to the growth momentum except for Brazil, which declined by c.5% due to tough macro-economic conditions (further rise in the unemployment rate). The expense management business clocked solid gains, especially in Hispanic Latin America (led by Mexico and Argentina) and to a lesser extent in Brazil. Financial revenue increased by 3.1% on a lfl basis as the 9.9% decline in Europe was more than offset by the 14.8% growth in Latin America. On a reported basis, total revenue (operating plus financial) was up 29.6%, on the back of a positive scope impact (16.6%; related to the consolidation of Embratec in Brazil and UTA in Germany) and FX tailwinds (3.4%, largely due to 28.7% appreciation in the Brazilian real vs the euro). The company stepped up the shift to a digital platform (as part of its turnaround plan named Fast Forward) by acquiring the assets of Moneo Resto in France (a fully digital meal voucher provider with a client base of 65,000 users). Edenred also issued bonds worth €500m (1.875% coupon and a 10-year expiry), reducing the average cost of debt to 2.1% (vs 2.6% in FY16). Management has reaffirmed full-year guidance – lfl growth in operating revenue: >7%, operating EBIT: >9% and FFO: >10%.
Edenred reported 9M FY16 results (ending 30 September) broadly in line with our estimates. The lfl revenue increased by +7% (Q3: +9.1%, Q2: +6.9%, Q1: +5.2%; our estimate: +4.5%), despite clocking a 1.9% decline in financial revenue (13.3% decline in Europe, partially offset by +7.3% growth in Latin America). Total reported revenue came in at €804m (+2.8% vs our estimate of +2.9%), on account of currency headwinds (-8.4% yoy; largely due to the depreciation of the Brazilian real and Mexican peso vs the euro), and partially offset by a 4.2% positive scope impact (primarily related to Embratec’s integration in Brazil). The take-up rate was unchanged yoy at 4.6%. Issue Volume (IV) increased by +8.9% on a lfl basis (Q3: +10.2%, Q2: +9.3%, Q1: +7.4%; our estimate: +7.2%), reflecting strong growth across all major regions. Europe was up 7.7% (Q3: +6.4%, Q2: +9.7%, Q1: +6.9%; accounts for c.48% of the group’s IV), once again driven by Central Europe (+8.5%; reflecting improving economic conditions) and France (+4.6%; due to solid gains in Ticket Restaurant solutions). Despite challenging macro-economic conditions, the LatAm region reported a strong sequential improvement (Q3: +14.3%, Q2: +8.7%, Q1: +7.5%; accounts for c.48% of the group’s IV), propelled by Hispanic LatAm (+18.4% yoy; employee benefit solution growth of 24.3%). Also, Brazil was up 4.5% on the back of strong growth in the expense management business (+15.7% yoy). Management has reiterated its FY16 guidance: IV organic growth of 8-14% (we go for the lower end of the range), EBIT to range €350-370m (vs our estimate of €351m), operating flow-through ratio to remain above 50% and FFO to grow by over 10% organically. Furthermore, a promising three-year plan (called Fast Forward) was announced at the investors’ day. The company aims to accelerate organic revenue and EBIT growth to over 7% and 9%, respectively, by adopting the following measures: 1. Acquire a controlling interest in UTA by exercising the call option to purchase an additional 17% stake (thus bringing the total to 51%). The move will increase the expense management business’s contribution to the group’s IV from 17% to 30% post consolidation. 2. Achieve double-digit organic revenue growth in expense management and mid single-digit in the employee benefits business through various initiatives. 3. Expansion in the corporate payments ecosystem (manage financial transaction flows among various companies across geographies). This encompasses the use of virtual card technology and establishing a private payment network by leveraging its authorisation platform, PrePay Solutions (70% owned JV with Mastercard). 4. Slashing the dividend pay-out ratio to at least 80% (currently >90% of recurring profit after tax) in order to augment the investment in the corporate payments business.
Edenred reported H1 FY16 results broadly in line with our estimates. The lfl revenue increased by +6.1% (Q2 16: +6.9%, Q1 16: +5.2%; our estimate: +4.7%), despite clocking a 1.6% decline in financial revenue (15.4% decline in Europe, partially offset by +9.8% growth in Latin America). However, the reported revenue was down 2.4% (vs our estimate: +3%) to €526m, on account of currency headwinds (-10.8% yoy; largely due to the depreciation of Brazilian real and Mexican peso vs the euro), and partially offset by a +2.3% scope effect. The take-up rate declined to 4.6% during the period (-10bp yoy). Issue Volume (IV) grew by +8.4% on a lfl basis (Q2 16: +9.3%, Q1 16: +7.4%), largely driven by a sequential improvement in the European region (Q2 16: +9.7%, Q1 16: +6.9%, Q4 16: +5.4%; c.50% of total IV). Within the region, “Europe – excluding France” led the momentum (+9.9% yoy; reflecting favourable economic dynamics in Central Europe and a positive calendar effect), followed by an improved performance in France (+5.2%; driven by the Ticket Restaurant business). Despite challenging macro-economic conditions, the LatAm region clocked +8.1% growth (Q2 16: +8.7%, Q1 16: +7.5%; our estimate: +7.5%; accounts for c.45% of total IV), primarily driven by the Hispanic LatAm business (+13.8%; led by +19.1% growth in employee benefit solutions). Also, Brazil was up 4.5% on the back of strong growth in the expense management business (+16.8% yoy). The company issued a €250m Schuldschein loan (fixed + floating rate; average financing cost of 1.2% and maturity of 6.1 years) and signed an agreement in July to extend the €700m undrawn revolving credit facility by two years to July 2021. Management has reconfirmed its FY16 guidance: IV organic growth of 8-14% (lower end of the range), EBIT to range €350-370m (vs our estimate of €351m), operating flow-through ratio to remain above 50% and FFO to grow by over 10% organically.
Edenred reported Q1 16 results below our estimates. The total revenue increased by 5.2% on a lfl basis (vs Q4 15: +5.4% and Q3 15: +4.9%), despite clocking a 3.1% decrease in the financial revenue. However, the reported revenue was down 5.2% (vs Q4 15: -2.5%, Q3 15: -4.3% and our estimate: +2.4%) on account of currency headwinds (-12.3% yoy; mainly due to the Brazilian real and Mexican peso), and partly offset by the scope effect (+1.9%; integration of ProwebCE business in France). The take-up rate declined to 4.6% in the quarter (vs 4.7% in Q1 15). On Issue Volume (IV), Edenred posted growth of 7.4% on a lfl basis (vs Q4 15: +8.4% and Q3 15: +7.0%), on the back of better growth in Europe (Q1: +6.9% vs Q4 15: +5.4% and Q3 15: +4.1%), with France (+4.2% vs Q4 15: 3.9% and Q3 15: +3.3%) leading the momentum, driven by the Ticket Restaurant business. However, the macro-economic challenges continued in the LatAm business (Q1: +7.5% vs Q4 15: +10.9%), largely due to the sequential growth slowdown in Brazil (Q1 16: 5.3% vs Q4 15: +5.4% and Q3 15: +5.7%); on the contrary, the Expense Management continued to post robust growth (+19.2% vs Q4: +18.8%, H1 15: 27.5%). The Embratec JV in Brazil (65%-owned by Edenred and 35%-owned by Embratec’s founding shareholders) is expected to be completed in the first-half of 2016. Management expects the organic IV growth at the lower end of the medium-term target of 8-14% in FY 16.
Edenred reported Q3 15 results in line with our expectations. Total revenue for 9M was up 6.8% on a lfl basis; however, on a reported basis, revenue was up 5.6% to €782m (post negative currency impact of -4.6% and +3.4% scope effect); this compares to our FY 15 estimate of €1,031m. On Issue Volume (IV), Edenred posted a growth of 8.7% in 9M and 7% in Q3 on a lfl basis (vs. our FY15 estimate of 8.1%), helped by better growth in Europe (3.7% in 9M and 4.1% in Q3). While rising unemployment levels in Brazil continued to impact the Employee Benefits business (+5.8% in 9M; +2% in Q3 vs. +8% in H1), overall IV in Brazil witnessed healthy growth of 9.7% in 9M (vs. +11.5% in H1) on the back of new client wins in the Expense Management business (+24.7% in 9M; +20.2% in Q3 vs. +27.5% in H1). On account of the sliding Brazilian real, management cut its operating profit target to €340-355m (vs. earlier guidance of €365-380m); this is in line with our estimate of €340m (as we incorporated currency woes in our 11 September update). Nonetheless, the company reiterated its guidance of 8-14% lfl growth in IV and its dividend policy of distributing >90% of recurring net profit after tax.
A good set of H1 numbers, particularly in the backdrop of a deteriorating economic scenario in Brazil which is a key market for Edenred (i.e. 50% of Issue Volume). - Brazil posted strong IV lfl growth (11.9%), despite some impact from rising unemployment on the Benefits business (IV lfl: 8%), primarily on the back of the robust pick-up in the Expense management business (IV lfl: 27.5%). The company continues to offset the macro blues through its digitalisation growth (now 66% at the group level) and its execution on the ground with a major partnership announced with Daimler. - Overall, IV growth was 9.5% and 9.6% on a lfl basis (vs. 1.5% and 12.3% in H1 14). While penetration growth and new solutions broadly held up (H1 15 vs H1 14: 4.6% vs 5.4% and 2.3% vs 2.5%, respectively), growth from voucher face value increases slumped to 2.5% (H1 14: 4.2%) as guided by the management earlier. Another key positive was EBIT growth of 11.5% to €165m despite a €6m FX impact, with lfl growth of 14.6% vs. 13.2% in H1 14; EBIT for the operating business increased 19.5% vs 17% in H1 14 on a lfl basis. This was primarily on the back of a 130bp improvement in the EBIT margin for LatAm to 43.8% (H1 14: 42.5%). Management confirmed its full-year guidance of 8-14% lfl growth in IV, revenue growth at a difference of 100bp to IV growth and set the EBIT target at €365-380m, incorporating a €23m FX impact given the FX rate of 3.47BRL/USD at the end of H1, i.e. 30 June 2015.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Edenred. We currently have 7 research reports from 1 professional analysts.
The sharp fallsin global markets have had an inevitably adverse impact on our smaller companies universe. We have seen prices marked down sharply but the level of underlying selling is not yet apparent. Without wishing to appear ‘one-eyed’ about it, it raises the question whether these falls represent a buying opportunity? Firstly there have to be signs of stability returning which may take time. There is an MPC meeting on Thursday which is likely to leave rates unchanged. In Share News & Views, we comment on 2017 AIM IPOs, Braemar*, Cropper*, FDM*, GetBusy*, NWF, Porvair, Sprue* and Warpaint*.
Companies: APC BMS CRPR ECSC EUSP FDM GETB PCF SNX SPRP TCN W7L
XP expects a lower effective group tax rate resulting from the reduction in US corporate tax rates from 35% to 21%. In addition, it expects to receive a tax refund from the Inland Revenue Authority of Singapore. This should drive upside to our FY18 EPS forecast as well as boosting XP’s cash position.
Companies: XP Power
Avon Rubber (AVON LN) - UK MoD agreement confirmed; Earthport (EPO LN) - Underlying progress in H1; LiDCO Group (LID LN) - FY trading update & new HUP wins; N Brown Group (BWNG LN) - Valuation anomaly at 2008 levels (9x P/E, 7% yield); Realm Therapeutics (RLM LN) - Positive clinical and business update; Sanderson Group (SND LN) - Good start to year, on track; Trifast (TRI LN) - Q3 trading update in line; Zinc Media Group (ZIN LN) - Board changes
Companies: AVON BWNG TRI RLM EPO ZIN SND LID
Following the nomination of preferred bidder status in November, Avon has announced that an agreement has been reached with the UK Ministry of Defence (MOD) for the General Service Respirator contract. The contract builds order visibility on both sides of the Atlantic while demonstrating the new strategy in action.
Companies: Avon Rubber
Gattaca plc (GATC.L, 202.5p/£62.6m) Trading update for half year to January 2018 and resignation of CEO (08.02.18)
Water Intelligence’s year-end update has detailed FY 2017 sales growth of +45% and adjusted PBT up +21%. Investment is being made into infrastructure to support the continued significant growth potential and we have factored this into our forecasts, offset at the earnings level by a lower tax charge. The global problems of water scarcity and losses from failing infrastructure are driving increasing demand for the group’s technologies and services. A recent partnership to sell innovative products into the home supports Water Intelligence’s aim to become a one-stop platform for water solutions. Including our estimate of the benefit from the US tax change, we have upgraded our FY 2018E EPS forecast by 3% and our FY 2019E by 4%, and raised our target price from 180p to 191p.
Companies: Water Intelligence
Allergy Therapeutics (AGY): Corp - Phase II grass trial fully recruited ahead of schedule; ANGLE (AGL): Corp - Gone FISHin’; Lok'nStore (LOK): Corp - Strong trading with six more stores in development; Proactis (PHD): Corp - Positive trading update Proteome Sciences (PRM): Corp - Trading update ; Savannah Resources (SAV): Corp - Drilling results from Mina do Barrosso, Portugal
Companies: AGY AGL LOK PHD PRM SAV
In the February 2018 edition of the Hardman Monthly Newsletter, Nigel Hawkins addresses the issue of the UK's infrastructure expenditure, much of which is energy-related.
Companies: OPM ABZA AVO AGY APH ARBB AVCT BUR CMH CLIG COS DNL EVG GTLY GDR INL MCL MUR NSF OBT OXB PPH NIPT PHP RE/ REDX SCLP SCE SIXH TRX TON VAL
Like many Premiership football managers, equity analysts sometimes lead a slightly masochistic life - trying to precisely forecast company results given numerous different competing variables, many of which are uncontrollable and externally dependent.
Polypipe is a manufacturer of high margin plastic piping and ventilation systems with a balanced exposure across a growing UK construction market. Consistent growth ahead of the market is driven by plastic piping substitution for legacy materials and legislation (water management; energy efficiency etc). A new Chief Executive also promises a fresh perspective on the Group’s strategy and approach to M&A. We view PLP as a solid long term holding with good growth prospects and initiate with a target price of 448p and a Buy recommendation.
Companies: Polypipe Group
Epwin encountered some turbulence in FY17 arising from customer ownership changes but ended the year in line with company expectations set following H1 results. Self-help initiatives are ongoing and we believe Epwin remains conservatively financed with a positive cash flow outlook. These factors support our assertion that the company is able to sustain its dividend attraction even during a temporary earnings dip in FY18.
Companies: Epwin Group
The AIM Healthcare index has shown positive returns in all but three out of the past 11 years (2007, 2008 and 2011), growing at a CAGR of 7.6% over the period. This compares with a CAGR of -0.3% for the broader FT AIM All Share, +0.6% for the AIM 100 and +3.5% for its more senior FT All Share Health index. Sector growth and relative performance to the AIM All Share index has accelerated over the past five years; the sector having risen 19.19% CAGR since 1 Jan 2012. This compares with 6.8% growth in the AIM All Share and 6.1% in the FT All Share. This outperformance can be attributed to the increasing success amongst the Healthcare constituents which have progressed their business plans to a point where substantial value has been/is being created and where many companies have successfully scaled their businesses to sustain future growth. We highlight four companies that have different business models but exemplify the opportunities that are increasingly becoming evident within the sector.
Companies: ABZA AKR AGY APH AGL AVCT BVXP COG CTH IHC LID MTFB ODX OPTI NIPT PRM SDI STX SNG TSTL
Epwin has announced a trading update confirming that FY17 results will be in line with expectations, ZC forecast £293.5m revenue and £21.3m Profit Before Tax. That trading has remained in line indicates that the customer issues raised in September are developing as expected, helped by the disposal announced in December, and importantly the operating environment has not deteriorated. Our view remains that the industry outlook for 2018 is difficult with the UK consumer likely to remain under pressure limiting any sustained recovery in the RMI market. Against this backdrop, and unlike many in the sector, forecasts for Epwin realistically assume a deterioration yoy. On FY18 forecasts the shares are trading on a PER of 7.2x and the yield of 8.6% is 1.6x covered by earnings. The inherent value in the business is highlighted by a price to book of 1.2x and with low levels of gearing, net debt to EBITDA is 0.7x, leverage risk is low.
Companies: Epwin Group
A period of stability following management change and delivery on some flagged FY18 group projects would see a good return of interest to the fundamental Low & Bonar investment case, in our view. There are clear markers for tracking progress and, in the near term, a 3.3% yield with the expected final dividend payment is a clear attraction.
Companies: Low & Bonar
Vitec will report FY17 results on 21 February. The Group has undergone a transition in the past year with the disposals of Haigh-Farr and Bexel, the acquisitions of JOBY, Lowepro and RT Motion and the restructuring of segments to better reflect the Group’s focus on addressing new customers and the independent content creator market. The results should give a further indication of how this transition is progressing. Commentary from the November trading update suggested some continuing recovery in the Photographic Division and improving performance in the Broadcast division with FY17 expectations unchanged at the time.
Companies: Vitec Group